At the
Beijing Motor show, Ford is showing a concept version of its Focus sedan that it
says was heavily influenced by the needs and tastes of the booming Chinese
market. “This concept was done for China,” asserts the show car’s design
director, Paul Gibson. But in an interview with TheCarConnection, he quickly
acknowledges that the prototype hints at what’s to come in other parts of the
world, including the U.S. The Focus concept is a bit larger and significantly
more roomy than the current subcompact sedan. It’s got a more distinctive
design, with a more refined feel and striking details, including LED head and
taillights. While that technology remains a bit too expensive for the small car
segment, Gibson reveals “a fair percentage” of the show car’s shape will show up
in production as the next global Focus.

Domestic
or export?

Volkswagen’s latest expansion renews a critical question
about China: whether to export or focus solely on the Chinese market? For Phil
Murtaugh, head of General Motors’ China operations, the answer is simple. GM is
doubling capacity simply to keep up with growing domestic demand.

VW apparently wants to do a bit of both,
focusing primarily on Chinese market needs, but also exporting perhaps 100,000
units annually. But Honda is the first automaker in China to announce plans for
a plant devoted exclusively to exports. The Japanese carmaker’s first venture,
in Guanzhou, has been repeatedly upgraded and expanded, and is producing more
than 200,000 vehicles annually. It also allowed Honda to develop a supplier
network that can meet both the cost and quality demands needed to export cars to
Europe, according to Sho Minekawa, CEO of Guanzhou Honda Automobile Co. Honda’s
second plant will produce the subcompact Jazz model for Europe, replacing a
version of the car now built in Japan. Initial production capacity will be
50,000 units annually, but that’s likely to grow. China has everything necessary
to become a globally-competitive export market,” according to Minekawa. Not
everyone agrees. Domestic suppliers are one of the biggest problems, with
relatively few able to meet global quality and cost targets. But that could
change over time, especially if vehicle production capacity begins to finally
catch up with market demand, suggests Michael Dunne, chief analyst with
Automotive Resources Asia. The homegrown Chinese makers, such as Cherry and
Geely seem especially interested in exports and, like the South Koreans and
Japanese before them, would likely use low prices as their initial entry into
markets outside China.

“Where
profits lead, capacity follows,” says analyst Dunne. And for foreign
manufacturers facing bitter battles for share in markets around the world, China
has been the last bastion for unbridled earnings. In the U.S., Dunne notes, a
Buick Regal has a profit margin of perhaps $500 a vehicle. In China, that’s
closer to $4000. And the same story is true for virtually every manufacturer
operating in the Asian nation, with only a few notable failures marring the
picture. Sales are continuing to surge — they’re expected to jump almost 30
percent, to five million this year, and exceed ten million by decade’s end —
leading many experts to predict more of the same – and industry planners to
earmark massive investments for China. Volkswagen, General Motors, Ford Motor
Co. and other makers have announced about $13 billion in expansion programs in
recent weeks. But Dunne cautions “We’re going to see overkill, just like we have
in other industries” competing in China. TV makers, he points out, have about
four times as much capacity as they need and have been accused of dumping
products overseas. “Everything has a downside,” concedes Heinz-Juergen
Preissler, CEO of BMW Brilliance Automotive. The joint venture is just ramping
up production of BMW’s 5-Series. But BMW is set to face an onslaught of new
luxury competitors, ranging from Lexus to Aston Martin. At all ends of the
Chinese market, competition has been steadily driving down vehicle prices — cuts
averaging 20 percent have been the norm in recent years. And that is expected to
put a squeeze on profits.